In Las Vegas, Deutsche Bank experiences a financial setback.
With three other banking establishments, Deutsche Bank has documented a US$100 million deficit in Las Vegas. This financial mishap is attributed to the distribution of a US$3 billion loan to MGM Growth Properties, which is responsible for the ownership of the prestigious MGM Grand and Mandalay Bay casinos lining the renowned Las Vegas Strip. Did the coronavirus outbreak contribute to the unfavorable outcome?
Negative Circumstances
As a result of a giant loan using Deutsche Bank's management to MGM Growth Properties, a corporate subsidiary of the prominent US casino conglomerate MGM Resorts, these banks - Citigroup, Deutsche Bank, Barclays, and Société Générale - have endured a loss coined at approximately €91.2 million. Manager Magazin reveals the virus outbreak incurred the banks to resell these questionable assets at "unfavorable conditions".
Consequently, the banks expedited the sale of the deals' least valued tranches. As investors usually enjoy large discounts, these tranches were consequently sold for a substantial reduction in value. Although it is the Citigroup that manages this loan, they must absorb 40% of the losses. The remaining 20% is shared across the three other banking institutions.
Regardless, the four Wall Street giants are unable to disregard this transaction in their account books, as the original loan of nearly US$2.5 billion remains on their balance sheets. The banks are optimistic that when the trading markets stabilize, owing to the pandemic resolving and the economy recuperating, they can sell the valued tranches of the loan.
The impending disaster can potentially induce significantly severe fiscal loss. Financial experts and individuals involved with the MGM case expound that MGM's likelihood of evacuating this entire loan is bleak. "Since it's already been distributed, the harm has been done," one financier involved informed Financial Times.
Emergency Stopped
The financial sector perceives this transaction as a clear demonstration of the banks' pursuit of offloading the assets that have been affected by the Covid-19 pandemic, incurring considerable damage. Previously, the four banks planned to uphold a US$1.9 billion mortgage-backed security deal using the awarded loan in February.
However, the health pandemic culminated in a "rapid sell-off", which spawned the casino shutdown in Las Vegas. According to sources in the industry, the market disaster abolished the banks' approach. Thereby, the lowest valued tranches were sold at considerable reductions to respective investors.
Promptly Granted
The US$3 billion loan was sanctioned in February, not long after MGM offered a 49.9% stake in its most admired facilities, the MGM Grand and the Mandalay Bay on the Las Vegas Strip, to hail the New York investment fund Blackstone in exchange for US$2.5 billion. Prior to the pandemic, the Las Vegas gaming haven flaunted an influential reputation with the financial industry.
The acquisition was a component of a joint venture pact between Blackstone and MGM Growth Properties, the latter continuing to maintain a dominant stake of 50.1% in the locations. Per the contract, Blackstone acquired only the property assets of these two casinos and agreed to lease these properties to MGM Resorts for around US$292 million annually.
The agreement seemed advantageous for Blackstone; both the MGM Grand and Mandalay Bay demonstrate over 5,000 hotel rooms and a 16,000 square meter casino area. The building complex further includes three apartment towers and constitutes the third-largest hotel on Earth. At that time, MGM CEO Jim Murren called the bargain a historical event for the company.
MGM's Fate
Now, all investors involved are likely to be cautious, as Las Vegas experiences a standstill due to the Covid-19 outbreak. Simultaneously, colossal costs are incurred daily without any accompanying income generation. Just a few days ago, MGM publicized its earnings update and revealed a 10% drop in revenue in the initial two months of 2020.
The corporation reported a revenue slump compared to the preceding year, primarily due to the casino shutdown and the general detainment in the economy. Consequently, MGM withdrew its 2020 profit prediction to its investors.
Despite the daunting circumstances, MGM continues to defend its contracts with Blackstone. The company has garnered over US$1.5 billion before taxes from their business association with Blackstone. In addition, their net profit skyrocketed from a modest US$27 million in the initial two months of 2019 to nearly US$1.3 billion in 2020.
This escalation was primarily due to the sale of the MGM Grand and Mandalay Bay. The group also intoned they possessed US$3.9 billion in cash, working capital, and cash resources to ensure financial resiliency. As William Hornbuckle, MGM Resorts' new CEO, stated last week, the company is "well-suited" to manage the current state of affairs.
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Source: www.onlinecasinosdeutschland.com
